A volatile European exchange rate means that hedging Single Farm Payment (SFP) income is increasingly important as a risk management tool, says farm business consultancy Strutt & Parker.

It comes after the European Central Bank (ECB) set the exchange rate at 0.79805 on September 28.

Strutt & Parker reports that more farmers are hedging their SFP as a form of insurance against currency fluctuations.

Mark Woods, partner in Strutt & Parker's Newbury office, said: "For farmers, hedging their SFP, or a proportion of it, means they know exactly what they are going to get when it comes to payments. It adds stability and certainty to forward business planning and reduces risk. The more an exchange rate fluctuates, the more important it is to put currency management on the farm business agenda.

"However, farmers must remember that the point of hedging is to minimise risk and it is not a means of making a profit. This is not a case of trying to second guess the market but of putting yourself in the best position to budget for the following year."

He added: "Forward hedges can be done at an exchange rate of about 0.080 £/Euro for 30 September 2013. This is only just above current levels."

Mr Woods forecast that as Sterling is predicted to weaken, now would not be the right time to fix. He added: "Rates need to be regularly reviewed - as frequently as farmers review grain prices."

For further advice and information please contact Mr Woods in Strutt & Parker's Newbury office on 01635 576904.

£/Euro rates for previous years:

2012 - 0.79805
2011 - 0.86665
2010 - 0.85995
2009 - 0.90930
2008 - 0.79030
2007 - 0.69680
2006 - 0.67770
2005 - 0.68194